In response to:
=========================================================
Salam and greetings.
Dr. Gafoor
wrote:
"As
I have illustrated using the theory, riba is in fact equal to interest in
some cases and not equal to interest in some other cases. But
the problem is not in the definition or use of the word “riba”, but in
the usage of the word “interest”! Ironically,
the authors of the confusion are not the ulema
but the bankers and the economists!"
While
Dr. Gafoor does not take issue with the orthodox definition of riba,
he not only acknowledges, but also demonstrates that the traditional
understanding of riba is deficient and it is misapplied to modern
interest. According to his analysis, five of the six components of modern
interest are not riba. This is a prime example of what I mean by
Non-Equivalence view vis-a-vis the traditional position that blanketly and
simplistically equates interest with riba.
However,
I have to respectfully disagree with his last two sentences. I think the
problem is just the opposite. From this
statement of Dr. Gafoor one might get the impression that our ulama has been
successful in defining what is riba. That is not the case in our
history. I am sure the word "interest" can be better defined, but
the problem is not one-sided.
It
is in this context, I would like to also address one aspect of Br. Robbani's
message, where he defines "interest' as: "Interest
= (also is) an increment on the loan
principal/debt obligation."
This
is a truly narrow understanding and definition of interest. Interest does
not pertain as "increment" to only loan or debt. More importantly
and generally, it occurs in the context of trade and exchange. Those who
might be familiar with John Maynard Keynes know that he was attempting to
develop a "General" theory (in contrast with the Classical
economy, presumed to be normally at full-employment, and thus not a general,
but a special case). The following excerpt from John Maynard Keynes' The
General Theory of Employment Interest and Money is quite
illuminating:
"The money-rate of interest — we may
remind the reader — is nothing more than the percentage excess of a sum
of money contracted for forward delivery, e.g. a year hence, over
what we may call the “spot” or cash price of the sum thus contracted
for forward delivery. It would seem, therefore, that for every kind of
capital-asset there must be an analogue of the rate of interest on money.
For there is a definite quantity of (e.g.) wheat to be delivered
a year hence which has the same exchange value to-day as 1000 quarters of
wheat for “spot” delivery. If the former quantity is 105 quarters, we
may say that the wheat-rate of interest is 5 per cent. per annum; and if
it is 95 quarters, that it is minus 5 per cent. per annum. Thus
for every durable commodity we have a rate of interest in terms of itself,
— a wheat-rate of interest, a copper-rate
of interest, a house-rate of interest, even a steel-plant-rate of
interest.
The difference between the 'future' and 'spot'
contracts for a commodity, such as wheat, which are quoted in the market,
bears a definite relation to the wheat-rate of interest, but, since the
future contract is quoted in terms of money for forward delivery and not
in terms of wheat for spot delivery, it also brings in the money-rate of
interest." [Chapter
17, Section I]
In a
non-monetized economy, money-rate of interest may not be of great
significance, but in a highly monetized economy, money ceases to be limited
to its only role as "medium of exchange." After clarifying the
above, Keynes continues to explore the following question: "Why should
the volume of output and employment be more intimately bound up with the
money-rate of interest than with the wheat-rate of interest or the
house-rate of interest?"
I
will not get into the details of this. Also, my purpose in quoting Keynes
here is not to suggest that his is the only, final or authoritative view
about interest. The only reason to quote Keynes here is to drive the point
home that the understanding of modern interest is quite broader than the
narrow frame or scope many like to cast in a way similar to Br. Robbani.
When our Ulama try to equate interest with riba (and vice
versa), especially without an agreed and coherent definition of riba,
we fail to explain or make a compelling case against interest, because
interest in modern times is generally understood and accepted in the context
of time value of money. We must remember that money is not a factor of
production, but as monetary asset it does represent purchasing power like
any other asset, except that this power is in the most liquid form.
Here
is the dictionary meaning of interest: "2 a : a
charge for borrowed money generally a percentage of the amount borrowed b
: the profit in goods or money that is made on
invested capital c : an excess above what is due or
expected." Please note the 2b meaning in terms of profit. [Merriam-Webster]
Also,
see, for example, "Interest. The payment made for the
use of funds to create capital goods with."
[Basic Economics Glossary maintained by Prof. Ken Rea at University of
Toronto]
If
one takes the narrow definition of interest, like that of Br. Robbani, we
need to acknowledge that this understanding is overly restrictive
compared to the modern understanding of interest. In a similar way, when our
Ulama traditionally equate interest with riba, they not only view,
but also argue (erroneously, though) that lending money on interest is
unproductive (or it is not connected with the real economic activitity).
However, in economics (as well as in modern economy), it IS viewed and
understood in the context of real economic activity.
That's
why Br. Robbani's understanding of interest is strictly and narrowly limited
to banking and finance, but does not cover broader economic meaning and
understanding. In a similar way, the reason Dr. Gafoor has so much
difficulty in making the Ulama see the relevance of his theory (i.e, five of
the six component of interest are not ribawi) is also because the
Ulama has neither defined riba effectively nor many of them understand
the role of interest in modern economy. Interest does not pertain to money,
but also to wheat, camel, goat, and what not.
Lest
it is misunderstood, interest may not be necessary for a modern economy.
However, we must make theoretically and intellectually a convincing case for
that view, which so far is lacking. While Dr. Gafoor's theory and approach are
helpful and illuminating to better understand the problem and limitation of
the simplistic Equivalence view, since he does not deal with the definition
of riba (rather he takes the definition of riba given),
there is a significant gap between the understanding of our ulema and the
kind of understanding he is trying to convey.
Fi
amanillah.
====================================